PED

Question 1

Definition of PED

Answer 1

PED measures the responsiveness of demand after a price change

Question 2

PED formula

Answer 2

% change in qty. demanded / % change in price

Question 3

Elastic demand

Answer 3

PED < -1
A change in price causes a more than proportionate change in qty. demanded.

Question 4

Inelastic Demand

Answer 4

PED is in between 0 and -1, PED<1
A change in price causes a less than proportionate change in qty. demanded.

Question 5

Unitary elastic demand

Answer 5

PED = -1

Question 6

Perfectly inelastic demand

Answer 6

PED = 0
Change in price causes no change in qty. demanded

Question 7

Perfectly elastic demand

Answer 7

PED = ∞
Change in price cause NO demand at all

Question 8

If PED is elastic, sellers should…?

Answer 8

decrease the price to make more revenue

Question 9

If PED in inelastic, sellers should…?

Answer 9

increase the price to make more revenue

Question 10

Importance of PED for firms and gov?

Answer 10

Firms - PED predicts expected sales revenue
Gov - Valuable info on how to influence consumption

Question 11

Factors that influence PED? (7)

Answer 11

1. The number of close substitutes for a good
2. The cost of switching between different goods/services
3. The % the good/service takes of a consumer’s income
4. Peak and Off-peak demand
5. The width of definition of a good/service
6. The degree of necessity
7. The period of time